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Despite selling on Friday, stocks posted a better stretch last week as investors looked to rebound from a largely brutal October. If a bottom has been found, major indexes could be in store for solid gains to finish the year. Nevertheless, companies with slumping earnings outlooks and questionable valuations should still be avoided.

Toymaker Hasbro looks to be one such stock. Hasbro makes toys, games, and various other entertainment products, and it certainly has an impressive portfolio of brands. From Nerf and Monopoly to Transformers and many popular licensed products, there is no doubt that Hasbro is a heavyweight in the toy industry.

But unfortunately, the company has hit a rough patch and does not look like a viable investment right now. We should start with its latest earnings report, which was delivered just two weeks ago.

Hasbro reported poor Q3 earnings, missing Zacks Consensus Estimates on both the top and bottom lines. Earnings of $1.93 per share lagged the consensus by more than 30 cents and slumped 8% from the year-ago period, while revenues fell 12% to touch just $1.57 billion. Analysts were looking for $1.71 billion in revenue from the company.

The toymaker has struggled since the liquidation of Toys “R” Us, and it has apparently not found a suitable replacement to that key retailer. Hasbro’s balance sheet has also suffered recently, with cash and cash equivalents slumping to $907 million from the $1.24 billion it has last year around this time. The company is now facing long-term debt of $1.69 billion.

Hasbro’s poor quarter led to swift and noticeable adjustment to its earnings outlook for upcoming periods, as analysts were quick to revise their estimates to the downside.

As the market looks to recover from a tough October, investors will be looking forward to the upcoming holiday shopping period and eyeing strong retail companies that are about to enter their busiest season. One great retailer that sticks out right now is Best Buy.

Best Buy is a leading retailer of consumer electronics and high-tech home goods. It owns brick-and-mortar stores, online platforms, and the Geek Squad service unit. The company is in the middle of its growth plan, titled “Best Buy 2020: Building the New Blue.”

This program aims to explore new expansion and cost optimization opportunities. Best Buy is developing omni-channel capabilities, upgrading its supply chain, and reinforcing partnerships with specific vendors. Moreover, the company is continuing to invest in core areas like appliances, health, smart home, and tech support. It is also rejuvenating its mobile phone department.

Now, an improving earnings outlook has earned the stock a Zacks Rank #1 (Strong Buy), and recent pullbacks in the broader market have given investors the chance to scoop up shares at an even more reasonable valuation.

Latest Earnings & Outlook

Best Buy reported its Q2 earnings results on August 28. The retailer notched adjust profits of $0.91 per share, easily topping the Zacks Consensus Estimate of $0.83 and improving nearly 32% from the year-ago period. Revenue for the period was $9.4 billion, which also beat estimates and surged 5% on a year-over-year basis.

Enterprise comparable sales increased 6% in the quarter, adding to the 5% growth it tallied in that segment last year. Domestic comparable online sales surged 10%, and overall, domestic comps were up 6%.

Best Buy’s balance sheet looked healthy at the end of the quarter. The company had about $1.9 billion in cash and cash equivalents and just $801 million in long-term debt. Management pledged to buy back a total of $1.5 billion worth of shares in the current fiscal year.

The strong quarter inspired Best Buy to lift its guidance for the rest of the year. Management now expected Enterprise revenue to grow 3.5% to 4.5%, up from previous guidance of nearly flat to up 2%. Earnings are projected to total $4.95 per share to $5.10 per share, which compared favorably to the Zacks Consensus Estimate, which stood at $5.01 at the time.

The strong earnings beat and guidance led to positive earnings estimate revisions, inspiring the company’s Zacks Rank #1 (Strong Buy) position. But investors will find that there are at least a few more reasons to like BBY right now.

On Nov.1st, the S&P 500 traded at 2711. Thirty days earlier, the S&P 500 traded at 2920. We lost 209 points, and went -7.1% lower. YTD returns were +9.4%. They sit at +1.4%.

Stocks must somehow put the 2018 bull trend back together in 2 month’s time, so we can call it a low double-digit returns year.

That looks much more doubtful now. But it is do-able.

U.S. Outlook

With higher rates and the U.S.-China trade war as headwinds, U.S. stocks have a set of storm clouds on the horizon.

That bearish storm blasted growth stocks in October.

Since a stock market correction is also not good for incumbents (competing in the looming U.S. elections), a high-level meeting has been set between Xi and Trump. It happens in late November at the G20.

That means there is a bull case, too.

Global Outlook

This U.S.-China trade war is just the latest in a long line of historical political disputes concerning the country’s Federal stance vis-à-vis the Rest of the World.

These party disputes usually extend their reach globally, into a variety of intertwined Federal policies. You might not realize that. Reflect back on the intertwined triad of Trade, Immigration and Security.

All of us, regardless of whether we are located inside the USA or outside it, will face consequences from this U.S. midterm election. And those consequences can be more wide-ranging and severe than any of us wish to consider.

In a 1948 speech to the House of Commons, Winston Churchill altered philosopher George Santayana’s famous quote slightly. He said to the members, 'Those who fail to learn from history are condemned to repeat it.'

More and more, that looks exactly like what we did.

Zacks November Sector/Industry/Company Telescope

To no surprise, given a strong Q3 earnings season performance, the Zacks Industry Ranks coughed up 3 Very Attractive sectors, and 3 Attractive Sectors.

Strength is broad. In Energy, attractive industries run across the board. Ditto Health Care. One must surmise the steady increase in Obamacare enrollments funds lots of businesses.

In Info Tech, the Semis are back on top. I am not surprised again. But hedge fund shorting took down many of these chip stocks in October. Telco equipment — with the 5G upgrades underway — is another sweet spot.

(1) Energy gets upgraded to Very Attractive. All industries other than drilling are on fire. Take a look at Energy-Alternates, Coal, and Oil & Gas Integrated and E&P.

Top Zacks Stock Pick: Hess Corp.

New York-based Hess Corporation, previously known as Amerada Hess Corp., is a global exploration and production company. It develops, produces, purchases, transports and sells crude oil and natural gas.

Molina Healthcare, a multi-state health care organization. It arranges for the delivery of health care services and offers health information management solutions to individuals and families who receive their care through Medicaid, Medicare and other government-funded programs.

(3) Industrials stay Very Attractive. The three industries that are best for picks are Pollution Control Aerospace & Defense, and Railroads & Trucking.

Top Zacks Stock Pick: Tetra Tech

Tetra Tech, Inc. is a leading provider of consulting, engineering, program management, construction management and technical services.

The company supports government and commercial clients by providing innovative solutions focused on water, environment, infrastructure, resource management, energy and international development.

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

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